Whose Name Holds the Property: The Tax Structure of Acquisition, Holding, Sale, and Succession

"A good property came up, so we're securing it now — we'll decide whose name it goes in later." We hear this from wealth holders in Japan repeatedly, and in tax terms the sequence is backwards. Whether title sits with an individual or a company is fixed at the moment of acquisition, and it continues to shape the tax treatment throughout the holding period, on sale, and at succession. Which route is better depends on rental scale, holding horizon, and succession plans, so no general answer exists — but where the outcomes diverge can be mapped as a structure.

Acquisition: Taxation Begins with Title

Real property acquisition tax is imposed on the acquirer of the property (Local Tax Act, Art. 73-2(1)), at a standard rate of 4% (Art. 73-15). Registration and licence tax and stamp duty apply as well, alongside brokerage and other acquisition costs.

The first divergence appears here. Where a company acquires property in the course of its business, such costs may fall within cost of sales or selling and general administrative expenses deductible in computing income (Corporation Tax Act, Art. 22(3)). Where an individual acquires property for personal residential use, household expenses and expenses related to them are not deductible as necessary expenses (Income Tax Act, Art. 45(1)(i)).

Holding: Fixed Costs, and Tax on Rent

Fixed asset tax and city planning tax are levied annually throughout the holding period. The standard rate of fixed asset tax is 1.4% (Local Tax Act, Art. 350(1)), and the city planning tax rate may not exceed 0.3% (Art. 702-4). These arise regardless of whose name is on the title.

The larger divergence is in how rental income is taxed.

Two qualifications matter. First, a company's burden does not stop at the statutory rates above — local corporation tax, enterprise tax, and corporate inhabitant tax push the effective figure higher. Second, the belief that incorporation lets an owner compress profit freely through their own salary is inaccurate: director remuneration outside the fixed-periodic categories is expressly non-deductible (Corporation Tax Act, Art. 34(1)).

A company also carries the per capita levy as a fixed cost in years with no income at all. The smaller the rental income, the heavier that fixed cost weighs in relative terms. No single threshold figure can be stated, but the framework for the decision is clear: whether the differential in tax burden exceeds the fixed cost of maintaining the entity.

Sale: The "Five Years" Is Measured on 1 January of the Year of Sale — Not the Sale Date

Income tax on an individual's transfer of land or buildings splits by holding period:

• Held for more than five years as of 1 January of the year of transfer: 15% of taxable long-term capital gains (Act on Special Measures Concerning Taxation, Art. 31(1))
• Held for five years or less as of 1 January of the year of transfer: 30% of taxable short-term capital gains (Art. 32(1))

This is the most frequently misunderstood point in the whole structure. The reference date is not the date of sale but 1 January of the year of sale, and the holding period runs from the day following acquisition (Art. 31(2)). So even where a full five years have passed since acquisition, the gain is treated as short-term unless the five years were already exceeded on 1 January of that year. In practice, the long-term rate does not apply until the sixth calendar year. That difference in reference date doubles the rate.

On top of these, a special income tax for reconstruction of 2.1% of the base income tax amount applies (Act on Special Measures for Securing Financial Resources Necessary for Reconstruction from the Great East Japan Earthquake, Art. 13), as does individual inhabitant tax.

For a company, gains are simply aggregated into income for the fiscal year, with no rate distinction by holding period. The result is that the advantage can reverse entirely between a short-hold strategy and a long-hold one.

Succession: What Gets Valued Changes

Inheritance tax is progressive, with 55% applying to the portion of the statutory-share-based amount exceeding ¥600 million (Inheritance Tax Act, Art. 16). From the aggregate taxable value, however, a basic deduction is subtracted: ¥30 million plus ¥6 million multiplied by the number of heirs (Art. 15(1)). Because the actual liability varies substantially with the number of heirs, the composition of the estate, and the availability of special provisions, no tax amount can be back-calculated from a property's price.

The structural difference lies in what passes. Under individual title, the property itself forms the estate; under corporate title, the shares in the company do. Property acquired by inheritance or bequest is valued at its fair market value at the time of acquisition (Art. 22). The methodology for valuing unlisted shares is set out in the National Tax Agency's Basic Circular on Property Valuation, and the process differs from valuing real estate directly. How large the resulting gap actually is depends on the company's asset composition and size classification, determined case by case — no general discount ratio can be asserted.

A Trust Does Not Switch Off Taxation

"If we put it into an offshore trust, does Japanese tax still reach it?" This too is a question we receive repeatedly. For income tax purposes, the beneficiary of a trust — limited to a person currently holding rights as a beneficiary — is deemed to hold the assets and liabilities belonging to the trust property, and the revenues and expenses attributable to that trust property are deemed to be the beneficiary's own (Income Tax Act, Art. 13(1)). Collective investment trusts, retirement pension trusts, and corporation-taxed trusts fall outside this rule (proviso to the same paragraph). In other words, using a trust as a wrapper does not by itself change to whom the income is attributed.

The same logic runs through inheritance and gift tax. Where a person becomes a beneficiary of a trust without bearing adequate consideration, that person is deemed to have acquired the rights relating to the trust from the settlor by gift — or by bequest, where the trust took effect on the settlor's death (Inheritance Tax Act, Art. 9-2(1)). Establishing a trust is not outside the scope of taxable events; it is defined as one.

Beyond that, the scope of inheritance tax liability is determined by whether the person acquiring the property had a domicile in Japan at the time of acquisition, holds Japanese nationality, or had a domicile in Japan at any time within the ten years preceding the commencement of inheritance, among other criteria (Art. 1-3(1)). The tax outcome of an offshore wrapper turns on the type of trust combined with the attributes of the settlor and each beneficiary. "It sits offshore, therefore it is not taxed" does not hold as a general proposition.

Structure Can Only Be Chosen Before You Buy

In our experience, most of these conversations begin after the purchase. But the choice of title is fixed at acquisition, and changing it later means a transfer that is itself a new taxable event. Four things are worth settling before you buy:

• Whose name will hold it — this sets the framework for tax during holding and on sale
• How large the rental income will be — this indicates whether the differential covers a company's fixed costs
• How many years you plan to hold — the holding period as of 1 January of the year of sale sets the rate
• How it passes to the next generation — whether the estate contains property or shares changes the valuation process

The market decides whether a property is a good one. The holding structure, by contrast, is something you design. Deciding the designable part first is, in our view, the correct order.

This article provides general information on tax systems and does not constitute individual tax consultation. Specific filings and tax computations are handled by licensed partner tax accountants whom we introduce.